Heavy Shipper Use Raises Rates in Spot Market for Truckload Freight

This story appears in the Nov. 29 print edition of Transport Topics.

Shippers are making heavy use of the truckload spot market to find freight haulers, leading to more loads and better rates — particularly for flatbed and refrigerated carriers — and worries for brokers who find themselves “under water” on some contracts with shippers.

Last month was the busiest month for truckload load postings of any October in the past five years on the electronic load boards run by the TransCore Freight Solutions unit of Roper Industries, and an executive with the company said preliminary results for November show it holding strong.

The good news for motor carriers comes at the expense of many brokers, said Chip Smith, chairman of the Transportation Intermediaries Association.

“Volumes in general are up and pricing is substantially stronger,” said Smith. “Truck supply is tighter than anticipated, and there’s a real fourth quarter going on, unlike what we’ve seen in recent years.”

Smith also is the chief operating officer of Bay & Bay Transportation, a Rosemount, Minn., trucking company with a logistics division.

In conversations with TIA members, Smith said he found that brokers are often caught in pricing arrangements with shippers that were made in 2009 or the early part of this year, when pricing was radically different. Current pricing for moving a load has outstripped the earlier schedules, thereby annihilating margins.

“Now things are the other way around, and we’re eating it,” Smith said.

The year-over-year growth rate in the posting of spot loads has cooled since hitting a peak of 292% in April, said TransCore Senior Vice President David Schrader. However, he said, the recent steady increases of 69% in October, 65% in September and 75% in August were probably more impressive.

“We saw freight really start to pick up late third quarter and early fourth quarter of 2009, so these are tougher year-over-year comparisons we’re seeing now,” Schrader said. He added that preliminary results for November show more volume than in October, while traditional shipping patterns work the other way, with November typically declining from October.

TransCore’s assessment is consistent with the American Trucking Associations tonnage index, which increased both sequentially and year-over-year in October (click here for related story). However, shipping, like the economy as a whole, is far from universally robust.

The Pulse of Commerce Index reported Nov. 9 that over-the-road truck shipping is declining, signaling a weaker holiday season. Although the report noted that year-over-year improvement continues, researchers focused more on a month-to-month dip.

“We have had a recovery timeout. Since the May peak, trucking has receded 8.3%,” PCI chief economist Ed Leamer said, characterizing the slow, continuing decline from August through October. PCI is compiled jointly by Ceridian Corp. and the University of California, Los Angeles.

Managers at third-party logistics provider Transplace Inc. said they see a recovery, but with cautions.

“Transplace does see from its customer data an increase in truckload spot activity that is driven by a reduction in available capacity year- over-year,” said Kyle Alexander, director of strategic carrier development. “Last year, there was still plenty of capacity when coupled with limited freight volumes. This is being compared to a market that is now rebounding slightly against limited numbers of trucks.”

Schrader said there is a lot of variation in the market, with high demand for flatbed and refrigerated equipment leading the surge in postings. The TransCore group of load boards hosts about 60 million U.S. and Canadian postings for loads and equipment a year.

Dry van postings also increased, but less significantly, Schrader said, adding that an oddity in the October data is that equipment postings also gained. Usually, he said, the two types of postings move in opposite directions.

Bay & Bay’s Smith said the Red River Valley in Minnesota and North Dakota needs trucks.

“There are canning factories here and producers of packaged seeds, and they all need a lot of trucks,” Smith said, adding that the St. Louis and Kansas City metro areas also could use more equipment.

Contrary to the PCI report, Smith said there is also a very high demand for trucks and intermodal containers heading east from the West Coast.

“There’s been more shipping from retailers than expected. The going rate is $1,000 for access to an empty container in California. If you’ve got one and don’t need it, you can resell it in 10 minutes,” Smith said.

A South Dakota-based refrigerated carrier recently told Transport Topics that he had all the business he could handle heading west. After his trucks got there, the demand for them was even higher, Jim Gray, marketing manager of K&J Trucking Inc., Sioux Falls, said on Nov. 15.

Truckload carrier Landstar System Inc., known for its business model that emphasizes the spot market, said in its third-quarter earnings statement that “the total number of truck transportation loads hauled in the 2010 third quarter increased 10% over the 2009 third quarter.”

“Additionally, from a pricing standpoint, revenue per load for truck transportation in the 2010 third quarter increased 14% over the 2009 third quarter,” Landstar Chairman and CEO Henry Gerkens said in the Oct. 14 statement.